Construction spending lags overall

July 6, 2026

Construction spending was essentially flat in May, up 0.1% from a downwardly revised April. Spending is now 1.5% below year-ago levels. The data are not adjusted for inflation. Adjusted for costs, the drop is steeper.

Input prices for construction rose 8.1% over the past year, the fastest pace since November 2022. Diesel led the way, up 106% year over year at its May peak, alongside continued tariff-driven increases in aluminum, copper and steel. Retail diesel has since retreated from its early April high but remains well above where it stood before the war in the Middle East began. Costs are climbing while nominal spending flatlines. Real construction activity is falling.

Private residential construction rose 0.3% in May and was up 1.8% from a year ago. New single-family spending slipped for the month and is down 4.0% year over year. Single-family building is not expected to recover the lost ground with mortgage rates remaining elevated. Single-family starts fell for a second straight month in May. More than 60% of builders are still offering sales incentives, a streak running over a year, and margin compression limits how much they can discount.

Multifamily spending was flat for the month. Years of record completions pushed rents lower and cooled appetite for new apartments. Fewer units are now coming on line, which means rents are expected to rise again. 

Private nonresidential spending fell 0.3% in May and was down 6.6% from a year ago. Manufacturing construction dropped another 1.3% and has now declined for 11 out of the last 12 months, leaving it 22% below year-ago levels. It has been the largest nonresidential category throughout its retreat, but power construction is on its way to exceed it.

Data centers remain the structural growth driver, up 0.6% in the month to a new record high. Spending on data center construction is up 23% from a year ago and 328% since the first frontier large language model hit the market. Data center construction is the physical footprint of an AI capital cycle that is still expanding. Hyperscaler capital spending is on track to rise from roughly $400 billion to $725 billion. Data center construction is the only category hitting new records.

Strip out data centers and the power to feed them, and nonresidential construction is falling even faster than the top line suggests; it dropped 0.5% on the month and 11.3% from a year ago before adjusting for inflation. The constraint on the data center buildout is scarcity, not lack of demand. Power, transformers and skilled trades are concentrated in a few grids, suppliers and regions, and that concentration sets the pace. Interconnection queues, energy costs and local opposition increasingly dictate how fast projects move. 

Public construction rose 0.5% in May and is up 0.3% from a year ago, but remains in the red after adjusting for the rise in costs. Highway and street construction, the largest public category, rose 0.6% for the month. Educational construction increased 0.6%. Public power spending fell from a year ago, a contrast to the private side. Many utilities are now requiring data centers to pledge funds to support the stress on the grid that they impose.